Martin Wheatly, of the UK’s Financial Services Authority, “will suggest scrapping Libor altogether and replacing it with a rate based on actual trades that would be overseen by a new independent body.”
LIBOR is the inter-bank loan rate set by an opinion poll of leading bankers. Said bankers, as just about anyone would expect, promptly used their power to manipulate the rate, causing a major scandal in London (where the rate is announced), and a rare instance in which American regulators actually did what they were supposed to do (their British counterparts, by contrast, were a disaster).
Ending LIBOR is something I called for roughly a month ago, so this is a step in the right direction. However, a rate “based on actual trades” already exists: the SONIA rate – a rate which did not spike during the fall of 2008 because it was set by hard-nosed decisions based on clear-eyed forecasts of the future, rather than a hapless survey set by people who knew they had the power to manipulate the result and used it to pretend all was well.
Either way, LIBOR is closer to extinction – and that’s a very good thing.
Cross-posted to Bearing Drift